BAH Going Away?

REPORTS ON A NEW SINGLE-SALARY PAY SYSTEM FOR MEMBERS OF THE ARMED FORCES (SEC 604) - Not later than March 1, 2017, the Secretary of Defense shall submit to the Committees on Armed Services of the Senate and the House of Representative a report that sets forth a plan to implement a new pay system. The new pay structure described shall assume the repeal of the basic allowance for housing and basic allowance subsistence for members of the Armed Forces in favor of a single-salary pay system.

And, if you search the document, here's what you find:

The new pay structure described pursuant to subsection (b)(1) shall assume the repeal of the basic allowance for housing and basic allowance subsistence for members of the Armed Forces in favor of a single-salary pay system, and shall include the following:

(1) A statement of pay comparability with the civilian sector adequate to effectively recruit and retain a high-quality All-Volunteer Force.

(2) The level of pay necessary by grade and years of service to meet pay comparability as described in paragraph (1) in order to recruit and retain a high-quality All-Volunteer Force.

(3) Necessary modifications to the military retirement system, including the retired pay multiplier, to ensure that members of the Armed Forces under the pay structure are situated similarly to where they would otherwise be under the military retirement system that will take effect on January 1, 2018, by reason part I of subtitle D of the National Defense Authorization Act for Fiscal Year 2016 (Public Law 114–92; 129 Stat. 842), and the amendments made by that part.

Two concerns about this proposal:

1. Does not allow (as written) for locality differential. Incorporating BAH into basic pay without allowance for the differences in cost of living could do two things:
-if the amount incorporated is assumed at the amount of the areas of the country with the highest cost of living, that provides a surplus in lower cost of living areas.
-if the amount incorporated is below the amount needed to provide housing in those higher cost of living areas, that provides a burden on those stationed in those higher cost areas.

2. This plan removes a significant benefit to military compensation by adding taxable income to service members. In a median income area (Norfolk VA) ... an E-6 filing jointly is now on the cusp of the next higher tax bracket. Assuming he gets a bonus, sea pay, proficiency pay or his spouse has a job making more than $7,000 per year in taxable income, he moves from the 15% tax bracket into the 25% bracket. An E7 or O3 at 8 years moves into the next high bracket as well. This legislation has the effect (intended or not) of pushing almost anyone with over 12 years in the military into, or nearly into, the 25% tax bracket.

The most important six inches on the battlefield ... is between your ears.

1. Does not allow (as written) for locality differential. Incorporating BAH into basic pay without allowance for the differences in cost of living could do two things:
-if the amount incorporated is assumed at the amount of the areas of the country with the highest cost of living, that provides a surplus in lower cost of living areas.
-if the amount incorporated is below the amount needed to provide housing in those higher cost of living areas, that provides a burden on those stationed in those higher cost areas.

2. This plan removes a significant benefit to military compensation by adding taxable income to service members. In a median income area (Norfolk VA) ... an E-6 filing jointly is now on the cusp of the next higher tax bracket. Assuming he gets a bonus, sea pay, proficiency pay or his spouse has a job making more than $7,000 per year in taxable income, he moves from the 15% tax bracket into the 25% bracket. An E7 or O3 at 8 years moves into the next high bracket as well. This legislation has the effect (intended or not) of pushing almost anyone with over 12 years in the military into, or nearly into, the 25% tax bracket.

Finally, a smart proposal. I don't think the locality thing will be an issue as there's already something in place for the GS pay system so I would imagine that would remain the same. I've argued several times, probably with you, that the BAH system is screwed up. It either needs to be a single number for everyone (with more expensive housing coming out of the person's base pay) or it needs to go away completely. Now SNCO/Officers will finally have to realize that they aren't entitled to a 3500 sq ft house without there being some hit to the pocket book.

Also, we already know that most military get back everything they pay in, or more, in taxes, and this will actually change that a little bit to make military members contribute fiscally.

Of course now we'll have to hear the words "hero" and "sacrifice" as the media spouts their faux outrage so as not to appear like they don't fully support everything military members.

Whether it passes or not, or gets amended or not, it's a step in the right direction.

Finally, a smart proposal. I don't think the locality thing will be an issue as there's already something in place for the GS pay system so I would imagine that would remain the same. I've argued several times, probably with you, that the BAH system is screwed up. It either needs to be a single number for everyone (with more expensive housing coming out of the person's base pay) or it needs to go away completely. Now SNCO/Officers will finally have to realize that they aren't entitled to a 3500 sq ft house without there being some hit to the pocket book.

Also, we already know that most military get back everything they pay in, or more, in taxes, and this will actually change that a little bit to make military members contribute fiscally.

Of course now we'll have to hear the words "hero" and "sacrifice" as the media spouts their faux outrage so as not to appear like they don't fully support everything military members.

Whether it passes or not, or gets amended or not, it's a step in the right direction.

The way I am reading the NDAA, it doesn't account for locality (like the GS scale does) ... but it could be written in by DoD as part of the plan.

The way the wording of it is that the amount incorporated would not be a set amount across all paygrades but "necessary by grade", so likely just incorporating a mean of what the BAH level was for that grade into that grade's base pay vice a "everyone get's 3k extra in base pay now plan (which is what I think you are in favor of).

I agree with you that "hero" is overused to describe the average service member, the kick in the shorts to many in the military under this plan is that for the average E6, this could result in an additional $7k tax burden per year ... that is more than a little bit.

The most important six inches on the battlefield ... is between your ears.

I agree with you that "hero" is overused to describe the average service member, the kick in the shorts to many in the military under this plan is that for the average E6, this could result in an additional $7k tax burden per year ... that is more than a little bit.

It's really not that much. As a GS-9 I make far more in taxable income than an E6 (about $20k more) and, after the standard deductions and claiming 1, I'm paying very little. The biggest thing some will lose is the EIC, which is kinda bullshit anyway.

It's really not that much. As a GS-9 I make far more in taxable income than an E6 (about $20k more) and, after the standard deductions and claiming 1, I'm paying very little. The biggest thing some will lose is the EIC, which is kinda bullshit anyway.

I guess a better way to put it is that it could be that much (or more depending on the spouse's job etc.) personal deductions etc. An E6 who owned a house and had no other income (spouse etc.) would pay less in taxes because of deductions that an E6 who rented an apartment or house. Depending on where an individual falls and how close they are to the top of their current tax bracket, a pay raise can actually cost them money.

Let's say someone earns a base pay of around $4k/mo ($48k per yr) and BAH of $2k/mo (adds $24k per year for a total of $72k).

The federal taxes on $48k (of taxable income) is about $9k, and the federal tax on $72k is about $16.5k.

Some people will have the AMT come into play and as you point out, EIC and the 'standard deduction' vice itemizing (especially for people who buy a house) deductions, but it would be a real change to everyone's take home income / bottom line.

One option would be to consider that since we are paid with Federal Taxes and send money back to the federal government anyway. Would it would be much more efficient to just reduce our pay and may all military pay federal tax free? Maybe ... but removes our 'skin in the game' -- I DO think military pay and pensions should be (at least at their current amounts) considered taxable income. Have seen too many people cry about how they shouldn't have to pay income tax on their retirement check.

I part I think we (the military) brought this on ourselves with the "An E3 fighting in a war zone only earns 22k a year" mantra too.

The most important six inches on the battlefield ... is between your ears.

Something I thought about too & I think a @Rusty Jones brought this up last time BAH was a topic:

This would be a change on pension amounts. Granted, the wording in the NDAA does say that the multiples could be changed to reflect the new single-pay proposal ... so instead of 50% at 20 years math ... maybe you only get 35% etc. since the base pay is higher.

Long term, this probably won't take place for some time. I would be if it does it has a locality scale (like @sandsjames said) since the cost of living in say Memphis TN is so much less than Washington DC.

The most important six inches on the battlefield ... is between your ears.

I guess a better way to put it is that it could be that much (or more depending on the spouse's job etc.) personal deductions etc. An E6 who owned a house and had no other income (spouse etc.) would pay less in taxes because of deductions that an E6 who rented an apartment or house. Depending on where an individual falls and how close they are to the top of their current tax bracket, a pay raise can actually cost them money.

A pay raise can not cost you money.

Let's say someone earns a base pay of around $4k/mo ($48k per yr) and BAH of $2k/mo (adds $24k per year for a total of $72k).

The federal taxes on $48k (of taxable income) is about $9k, and the federal tax on $72k is about $16.5k.

Base pay does not equal taxable income...still have to take deductions...but yes, taxes will go up if taxable income goes up...but you can always increase the increase by the typical increase in tax burden.

Some people will have the AMT come into play and as you point out, EIC and the 'standard deduction' vice itemizing (especially for people who buy a house) deductions, but it would be a real change to everyone's take home income / bottom line.

I would agree that taxes will go up...the solution could be as simple as make the increases include the additional tax burden.

...so instead of the 24K increase, you increase it by 31K to account for the presumed tax burden...it would not be exact for everyone as you say, depending on the members other financial matters the actual tax may differ.

One option would be to consider that since we are paid with Federal Taxes and send money back to the federal government anyway. Would it would be much more efficient to just reduce our pay and may all military pay federal tax free? Maybe ... but removes our 'skin in the game' -- I DO think military pay and pensions should be (at least at their current amounts) considered taxable income. Have seen too many people cry about how they shouldn't have to pay income tax on their retirement check.

I part I think we (the military) brought this on ourselves with the "An E3 fighting in a war zone only earns 22k a year" mantra too.

It almost sounds like this is what is driving the change...to present a fair number of pay and compensation "for recruiting and retention"...a single pay system will allow more fair comparison of what a military person gets when joining or gives up by leaving.

The cynic in me tells me that this is the excuse to make the change, but the real reason is to save the govt. money...and that money comes out of the pay of the servicemembers. It will be sufficiently complicated enough to offer roundabout explanations of why it is good for the servicemembers, while save the govt. billions of dollars.

Originally Posted by Mjölnir

Something I thought about too & I think a @Rusty Jones brought this up last time BAH was a topic:

This would be a change on pension amounts. Granted, the wording in the NDAA does say that the multiples could be changed to reflect the new single-pay proposal ... so instead of 50% at 20 years math ... maybe you only get 35% etc. since the base pay is higher.

Yes, that is what it sounds like...change the math to make the retirement approximately equal.

Long term, this probably won't take place for some time. I would be if it does it has a locality scale (like @sandsjames said) since the cost of living in say Memphis TN is so much less than Washington DC.

It would be interesting to see the math on how it plays out in 10 to 20 years.

BAH and Base Pay increase over the years on differing factors. BAH goes by the local housing costs and can increase or decrease with the housing market...while Base Pay increases on the CPI and I've never it go down.

But once again...for any math problem, there is a math solution...you can adjust the locality pay each year to account for housing changes.